Absolute poverty vs Relative poverty

Almost all underdeveloped and developing countries prefer targeting Absolute poverty.
Under absolute poverty certain minimum basic standards of living are defined and
people living below these standards are termed in policy as poor or below poverty line.
This is done by determining a poverty line basket and calculating monetary figure of
that basket (as in India), which varies across countries.

In contrast relative poverty is measured in relation to rich people of the country. In this
method certain percentage of economically bottom population is always considered
below poverty line. In these countries BPL people may have all basic amenities and
reasonable standard of living, but as their incomes are far below national per capita
income they get support of government.

Argument that India should focus on absolute poverty need no further elaboration,
given such low consumption of vast part of population which NSSO and various other
studies reveal.

Poverty line basket

Determining composition of the basket is among most debated part of the issue. To
make a living people consume innumerable items. Apart from food; housing, fuel,
health, education, communication, conveyance, entertainment/recreations are the
things which are important. But whether they should be included or not, if so their
weights in basket, whether health should get preference over housing, or whether
reasonable expenditure on recreation be included in basket etc. are toughest questions
to be answered. Problem is that these are qualitative aspects, which are needed to be
quantified.

Further, consumption varies as per age groups, occupation, regions, cultures and
gender. This variation is hard to capture.

Over the last decade consumption by Indians has risen constantly and share of food in
total consumption has fallen. Also, within food share of calorie rich cereals have fallen
and Share of proteins, fat, nutrient rich items like pulses, milk, fruit has risen.

Historically focus of India’s poverty like basket policy has been on consumption of
calories which was first adopted in 1970’s on recommendation Algah committee. It was
believed that 2400 kcal in rural areas and 2100 Kcal in urban areas was sufficient to give
good nutritious health to citizens. In this sense, number or percentage of people below
poverty line and those of under or malnutritioned people, should be roughly same. But it
is known that undernutrition is more rampant and widespread than poverty and
outscores ratio of BPL people by huge margin. This forced our policy makers to look for
other determinants of nutritional status and they found that pre natal/birth health of
mother, post natal care of babies, Sanitation, open defecation, health and educational
infrastructure has decisive impact on nutritional status of people. Lack (or presence) of
many these things has pushed significant number of people towards undernutrition,
even when they consumed more than needed calories. These issues were taken into
account by Tendulkar committee to some extent. (More on this later)

Reference period

During the survey NSSO workers will ask certain questions to households. Period
covered by these questions is called reference period. Care has to be taken that this
period is representative of general pattern of consumption. If we take ‘Poverty line
Basket’ it will cover food and nonfood items. In case of food, expenditure is routine and
a month’s consumption can give us data which represents general pattern. If we take
consumption pattern of Nonfood item such as clothes or footwear, we find that in a
normal household, these are once or twice in year expenditure. If we take reference
period 30 days for these products we’ll find in majority of household no expenditure at
all. So reference period should be different for different category of items.

Income based poverty line vs consumption based poverty line

We have seen that NSSO captures consumption expenditure which used by Planning
commission to determine poverty line. An alternative way of calculation of poverty line
can be one based on Income of the population. But till now all committees have favored
consumption based poverty line due to following factors –

1. Huge majority of population has irregular income, most of them are in informal
sector which consists of self-employed people, daily wage laborers etc. Income of
this group is highly variable both temporally and spatially, while consumption
pattern are comparatively much stable.
2. Even in case of regular wage earners, there are additional side incomes in many
cases, which is difficult to take into account.
3. For e.g. MGNREGA provides employment for about 100 days, for rest of the time
too people will earn something.
4. NSSO’s sample based surveys use a ‘reference period’ (say 30 days). They will ask
households under survey about their consumption in last 30 days. This they will
take a representative of general consumption of that household. This is not
possible in case of income.

So we can conclude that in absence of reliable data Income based approach can’t be
relied upon

Causes

(i) Heavy pressure of population:

Population has been rising in India at a rapid speed. This rise is mainly due to fall in death rate
and more birth rate.

India’s population was 84.63 crores in 1991 and became 102.87 crores in 2001. This pressure of
population proves hindrance in the way of economic development.
(ii) Unemployment and under employment:

Due to continuous rise in population, there is chronic unemployment and under employment in
India. There is educated unemployment and disguised unemployment. Poverty is just the
reflection of unemployment.

(iii) Capital Deficiency:

ADVERTISEMENTS:

Capital is needed for setting up industry, transport and other projects. Shortage of capital creates
hurdles in development.

(iv) Under-developed economy:

The Indian economy is under developed due to low rate of growth. It is the main cause of
poverty.

ADVERTISEMENTS:

(v) Increase in Price:

The steep rise in prices has affected the poor badly. They have become more poor.

(vi) Net National Income:

The net national income is quite low as compared to size of population. Low per capita income
proves its poverty. The per capita income in 2003-04 was Rs. 20989 which proves India is one of
the poorest nations.

(vii) Rural Economy:

Indian economy is rural economy. Indian agriculture is backward. It has great pressure of
population. Income in agriculture is low and disguised unemployment is more in agriculture.

(viii) Lack of Skilled Labour:

In India, unskilled labour is in abundant supply but skilled labour is less due to insufficient
industrial education and training.

(ix) Deficiency of efficient Entrepreneurs:

For industrial development, able and efficient entrepreneurs are needed. In India, there is
shortage of efficient entrepreneurs. Less industrial development is a major cause of poverty.

(x) Lack of proper Industrialisation:

Industrially, India is a backward state. 3% of total working population is engaged in industry. So
industrial backwardness is major cause of poverty.

(xi) Low rate of growth:

The growth rate of the economy has been 3.7% and growth rate of population has been 1.8%. So
compared to population, per capita growth rate of economy has been very low. It is the main
cause of poverty.

(xii) Outdated Social institutions:

The social structure of our country is full of outdated traditions and customs like caste system,
laws of inheritance and succession. These hamper the growth of economy.

(xiii) Improper use of Natural Resources:

India has large natural resources like iron, coal, manganese, mica etc. It has perennial flowing
rivers that can generate hydro electricity. Man power is abundant. But these sources are not put
in proper use.

(xiv) Lack of Infrastructure:

The means of transport and communication have not been properly developed. The road
transport is inadequate and railway is quite less. Due to lack of proper development of road and
rail transport, agricultural marketing is defective. Industries do not get power supply and raw
materials in time and finished goods are not properly marketed.

What is Law & Economics?

The law and the economy interact in many ways. Whereas private law assists individuals and
groups who are willing to enter into agreements in a free market, public law seeks to correct the
outcomes of a free market system by means of economic and social regulation. Economists
themselves should be informed about the legal environment in which economic activities must
be conducted, while lawyers should be aware of the economic effects of current legal rules and
the expected outcome under a different legal regime. Law & Economics meshes together two of
society’s fundamental social constructs into one subject, allowing a multi-faceted study of
significant problems which exist in each subject.

What can Law & Economics do?

Law & Economics, with its positive economic analysis, seeks to explain the behaviour of
legislators, prosecutors, judges, and bureaucrats. The model of rational choice, which underlies
much of modern economics, proved to be very useful for explaining (and predicting) how people
act under various legal constraints. This positive analysis informs the normative branch of the
discipline about possible outcomes. If effects of divergent legal rules and institutions are known,
the normative analyst will be able to discern efficient rules from those that are inefficient and
formulate reform proposals to increase the efficiency of the law. Also, Law & Economics has the
ability to improve the quality of the legal system. In the last decades, an impressive literature has
developed, showing the strength of both positive and normative economic analysis in various
areas of law.

Law and Economics

The law and economics movement applies economic theory and method to the practice of law. It
asserts that the tools of economic reasoning offer the best possibility for justified and consistent
legal practice. It is arguably one of the dominant theories of jurisprudence. The law and
economics movement offers a general theory of law as well as conceptual tools for the
clarification and improvement of its practices. The general theory is that law is best viewed as a
social tool that promotes economic efficiency, that economic analysis and efficiency as an ideal
can guide legal practice. It also considers how legislation should be used to improve market
conditions in return. Law and economics offers a framework with which to model legal
outcomes, and common objectives with which to unify disparate areas of legal activity. The
bringing together of legal theory and economic reasoning has also created new research agendas
in the fields of behavioral economics: how rationality affects people's behavior within legal
scenarios; public choice theory and how collective behavior should have an effect on legislation;
and game theory: understanding strategic action in a legal context.

1. Law as an Autonomous Practice

Most traditional theories of jurisprudence look to uncover the essential or definitive aspects of
the institution of law. Two of the most influential are Legal Positivism and Dworkin’s Law as
Integrity. While these two differ as to their definition of law and legal reasoning, they agree upon
some basic central assumptions, determining the conclusions that two philosophical
investigations with largely the same aims, can reach. Because of this it is important to
acknowledge some of the assumptions that are held in common by these jurisprudential stances.

First, both theories agree upon the conceptual nature of jurisprudence. Both agree that it is
important for a philosophical theory of law to define the core aspects of proper legal practice in
order to fulfill the function of philosophical jurisprudence. In fact, much philosophical discussion
of law assumes that such a characterization is the essential aim of jurisprudence. Second in order
to arrive at a properly analyzed concept of law, both legal positivism and law as integrity are best
constructed from specific techniques of analytic and linguistic philosophy. These techniques
include the investigation and clarification of the way people commonly speak about law and
careful parsing of social practice that separate the legal from the non-legal. The third common
assumption is that the best way to understand legal practice is to understand the necessary and
sufficient qualities that make some rule or statement into a law. Once such a set of necessary and
sufficient conditions is identified (or approximated) it is thought that the essential aspects of
particularly legal practices have been understood.
Instead of following this path, theorists within the law and economics movement have attacked
the study of law from another angle. Rather than trying to identify unique conceptual aspects of
law, what is advocated is an investigation of legal practices through the means of economic
analysis. The conclusion offered is that legal practice is best understood through its function as a
social tool promoting economic efficiency, in common with other social practices.

Instead of following this path, theorists within the law and economics movement have attacked
the study of law from another angle. Rather than trying to identify unique conceptual aspects of
law, what is advocated is an investigation of legal practices through the means of economic
analysis. The conclusion offered is that legal practice is best described by its purported function
as a social tool aiming at the promotion of economic efficiency - something it has in common
with other social practices.

2. Law as a Tool to Encourage Economic Efficiency

So, instead of looking for the unique and defining features of law, the practitioner of law and
economics looks at law as a social tool and tries to evaluate it functionally. What is emphasized
is not its uniqueness as an institution, but its place within the general and common economic
structure of society. The descriptive claim most often associated with law and economics is that
legal practices are best characterized as tools for encouraging economically efficient social
relations. To understand this claim it is important to examine some of the basic concepts used in
models of economic reasoning.

a. Basic Concepts in Economic Reasoning

Essential to an understanding of the law and economics movement is a set of fundamental

concepts. The most central assumption in economics is that human beings are rational
maximizers of their individual satisfactions, and, in turn, respond to incentives. A rational
maximizer of personal satisfaction adjusts means to ends in the most efficient way possible. It is
important to realize that economics, as understood here, is not restricted to analysis of monetary
issues; there are nonmonetary as well as monetary satisfactions. Every potential satisfaction is
implicated in the calculus of economic satisfactions and therefore can be investigated according
to economic or means-end rationality and the trade-off of costs and benefits. Normally what is
aimed at through economic reasoning is the improvement of efficiency.

A more efficient allocation is one that increases the net value of resources. Efficiency in the
allocation of resources is distinguished from equity, which is concerned with justice in the
distribution of wealth. Because some people value specific goods higher or lower than others,
economic efficiency can often be raised through voluntary transfers of goods. The most common
example of a transfer promoting efficiency is that of a freely entered into contractual
relationship. Because one party to the transaction values money more than the item owned, and
the other values the item owned more than the asking price, the exchange produces a net gain in
economic goods. Each person ends up better off than before. Some economists have gone so far
as to argue that such a contractual exchange is morally optimal because it works within both
Kantian and utilitarian theories of morality. They argue that it works with Kantian theories
because a contract is thought to represent a good example of interaction between free and
rational agents. It works with utilitarianism because the idea of wealth maximization intuitively
translates into more utility.

Economists have a variety of terms to describe possible outcomes of economic exchanges. For
instance Pareto optimality is defined as a point where resources are allocated such that no one is
willing to trade further. Pareto optimality is the eventual endpoint of a series of Pareto superior
moves. A Pareto superior change makes at least one person better of without making anyone
worse off. Because no one is worse off after the trade there are no losers in Pareto improvements,
although there may be many different Pareto optimal endpoints. Furthermore, economists have
developed the concept of Kaldor-Hicks efficiency to compensate for obstacles to freely
contracted exchanges. Kaldor-Hicks efficiency, or potential Pareto superiority, results when the
overall economic gains outweigh the losses. In other words, the gains in economic efficiency are
large enough that the winners could, if they had to, compensate the losers in the new allocation
of goods and still remain better off.

b. How Law Can Encourage Economic Efficiency

The law and economics movement claims that law is best understood as a tool to promote
economic efficiency. But how can the institution of law help encourage efficient transactions?
One way is to help avoid situations that lead to market failure. One example of market failure is
the existence of monopolies: a situation where one party is able to extract more profit from a
good than a healthy market would allow. Law can be used as a tool to ensure that monopoly
situations are hard to bring about and maintain. Another way legal systems can be used to ensure
economically efficient transactions is through the enforcement of valid contracts. By ensuring
compliance with contractual terms courts can give parties to a contract confidence that the other
party will fulfill the agreed-to obligations. This becomes especially important in situations where
the parties must complete their obligations at different times.

But some types of market failure are less obvious, and the legal means toward remedying them
subtler. One problem in market transactions is that of externalities. An externality is a cost not
reflected in the market price of a good. For instance, a factory may not have to internalize the
costs it imposes upon the environment into the selling price of its goods. In this case the market
price of the good will not reflect its real cost – and therefore some of the costs are imposed upon
parties in an involuntary manner. Pigou argues in regard to this that legal means should be used
to impose a marginal tax upon the offending party, to internalize any externalities. The
economist Coase argued that this conclusion, while warranted in specific cases, was too global.
Coase argued that in a market where transactions are costless and people do not act strategically,
rights assignments are irrelevant because from any starting point the results will be economically
efficient. In other words, the Coase Theorem states that if there are no transaction costs the
assignment of entitlements will be irrelevant to the goal of allocative efficiency. In such a
situation there will be no need for law to internalize costs because people will bargain to the
most efficient possible allocation of goods. But outside of conceptually ideal markets there are
always transaction costs such as information costs, opportunity costs and administrative costs. If
transaction costs are somewhat high, then it does matter how property rights are assigned.
Therefore the enforcement and allocation of legal entitlements will be an important factor in
ensuring economically efficient exchanges. So law can be used to encourage economic
efficiency. But is all law best described in economic terms?

c. Can All Law be Explained as Economic in Nature?

It may be no real surprise that law often is used to encourage efficient exchanges. But it seems a
stretch to claim that law as an institution is best completely described in economic terms. It
seems counterintuitive to view all law as based upon market principles. What the economic
analysis of law manages, though , is to see such disparate areas as contract, tort and criminal law
as all based upon economic aims, therefore giving law a more coherent basis than other theories
can offer. Richard Posner argues that tort cases - those involving private harm - can be seen as
contractual by looking for the hypothetical terms that the parties to an accident would have
agreed to in advance in order to bring about the accident voluntarily. Also that criminals are
deterred by the threat of punishment only if the likelihood of punishment multiplied by the
quantity of punishment exceeds the gain offered by the criminal act. Scholars have been quite
effective in extending the tools of economic analysis into areas that seem to be anything but
economic in nature. Even rules of evidence and legal ethics have proved amenable to economic
analysis. However, it may be argued that an economic explanation of law fails on two counts.
Firstly as a descriptive analysis it doesn’t do justice to everyday legal conceptions. Secondly as
an analytical analysis of the necessary conditions for the practice of law it may not be able to
account for the internal point of view which Hart thought so central to a proper understanding of
law. More analytical approaches to economic explanation of law have considered this a fatal
flaw in the project (see Coleman 2001). This may be mistakenly importing traditional
philosophical aims into a drastically different project, but the truth is that it is often hard to tell
what types of theoretical claims are being made within law and economics. If the claims are of
exhaustive descriptive accuracy or of the necessary and sufficient conceptual foundations of law
then it is more than likely a failure. But whether or not law and economics is an accurate or even
conceptually necessary description of law as a social institution, and whether or not it suffices as
a complete analysis of law, it could be argued that law should in any case adopt economic
efficiency as the central aim guiding judicial decision-making.

3. Economics and Normative Jurisprudence

Though analytically incomplete, economic analysis models the actual results of legal institutions
better than any other theory. This does not entail, however, that law ought to be consciously used
for such an aim. Might not law be better used to consider issues related to justice, duty and the
like? Advocates of law and economics have argued against such a conclusion. The arguments
usually are of two types. First, it is claimed that meanings of words such as justice or duty are so
vague and in dispute that the use of such concepts for a basis of judicial decisions offers no
guidance whatsoever. It is argued that while such concepts are unhelpfully complex, the tools of
economic analysis and the concept of economic efficiency are sufficiently clear to provide the
judge a solid and predictable basis of decision. Law is better able to decide according to
efficiency rather than justice or duty due to limitations of institutional competence. This might be
so if issues of justice are so complex as to involve information that courts are structurally unable
to process. Second, it has been argued that because the paradigm case of justice is the freely
entered in to contract, law is best seen as a tool to optimize contractual arrangements. If this is
so, then where law can help is in situations where transaction costs are so high as to prohibit
efficient contractual relationships. Here Posner argues that law can encourage economic
efficiency by assigning property rights to those parties who would have secured them through
market exchange if transaction costs were lower. In other words law should bring about
allocations that mimic the results of a properly functioning market. In addition, advocates of
economic analysis of law make a claim that other jurisprudential traditions seem to be unable to:
that the analytic tools offered by law and economics has encouraged the further creation of other
productive areas for analyzing law (see Posner 1998).

4. Later Developments
Another argument for the fertility of the economic analysis of law is that it has spawned a
number of further tools that seem helpful in understanding legal institutions. Three of the most
important of these are the results of behavioral economics, game theory and public choice theory.

a. Behavioral Economics and Law

Practitioners of behavioral law and economics examine human limits to means-end rationality.
One of the outcomes of behavioral economics is the concept of bounded rationality. Bounded
rationality means that information is not processed according to a model of perfect means-end
rationality but, to the contrary, is distorted due to limits of our cognitive abilities. For instance
the endowment effect is thought to be a behavioral limit that distorts the proper valuation of
property, an important aspect of bargaining to efficient outcomes. According to the effect, the
ownership of objects creates an irrational cognitive overvaluation of them. Another claim is that
our cognitive abilities are distorted by the availability heuristic. According to this the availability
of strong imagery may induce us to over or underestimate the actual probability of events
associated with the image. For instance, graphic representations of highly improbable harms
might be more influential on behavior and demand unjustified use of resources than statistical
analysis showing another equally undesirable harm to be more common and easier to avoid.
Jurisprudential practices could be significantly influenced by such results. For instance, judges
might be as irrationally influenced by the availability heuristic as other human beings. Therefore
victim impact statements might be important correctives to proceedings if a well-presented
defendant’s presence in the court skews judge or jury's decisions. An awareness of such a
cognitive failure could help adjust legal reasoning and its conclusions accordingly. Finally, an
awareness and exploitation of universal cognitive limits might help legislators to design more
effective laws (see Sunstein 2000).

b. Game Theory

Game theory adds to economic modeling the phenomenon of strategic action. Strategic actions
are those adopted because of the competitive nature of many social transactions. They are
adopted due to how one individual expects another to act in response. For example, a person who
wishes to buy an item cheap would act disinterested so as not to signal his or her actual desires to
the seller. Addition of analytic tools dealing with strategic action greatly strengthens the
economic analysis of law. For instance, the Coase theorem, to function properly, necessarily
excludes strategic action; cooperation is just assumed. But it seems apparent that legal actions
often are deeply implicated in and animated by strategic motives. Common sense tells us that full
open cooperation is not always the best path to bringing about one’s desired results. In fact much
of the bargaining invested in designing an effective contract seems to be done in the shadow of
potential strategic action on the part of the contracting parties. Designing legal rules with an eye
to the possibility of strategic action helps ensure that the rules will not create perverse outcomes.
For instance, if a defendant’s privilege against self-incrimination could also encourage an
inference of guilt from the silence the privilege would be all but useless. Therefore, courts have
not only barred comment on the refusal to testify but also have required that juries, on
defendant’s request, make no inference from such a choice (see Baird et al 1994). Further, the
understanding that legislators might have adopted specific wording for a law based upon
strategic motives may help direct the proper aims of judicial interpretation. This type of claim,
though, is often better analyzed by the tools offered in public choice theory.

c. Public Choice Theory

Public choice theory is centered upon how the nature of the legislative process and collective
decision making influence the nature of law. It is the application of economic models of
decision-making and their results to the issues that traditionally occupy political science, for
example Arrow's Theorem. One claim made within public choice theory is that a proper
understanding of collective decision processes will help judges understand their position within
the system. If all collective decisions are unavoidably influenced by those who get to frame the
questions debated and the order of voting - the agenda-setters - public legislation will need to be
interpreted differently than if it were a more neutral recording of collective wishes. Such a
theoretical result makes problematic a court’s reference to the intent of the legislature

History of Law & Economics

Law & Economics began its synthesis as a discipline through the theories of the Chicago School,
and received guidance and influence from such pioneers as Guido Calabresi and Nobel Prize
winners Ronald Coase and Gary Becker. Richard Posner’s book ‘Economic Analysis of Law’
became one of the classics of the discipline. Recently, other methods have moved to the fore,
including the Property Rights approach, the Austrian School and the Neo-Institutionalist
approach. Finally, the Public Choice School, with Nobel Prize winner James Buchanan as an
outstanding author, focuses more specifically on the political context of the law-making process.

Origin and history

As early as in the 18th century, Adam Smith discussed the economic effects of mercantilist
legislation. However, to apply economics to analyze the law regulating nonmarket activities is
relatively new. A European law & economics movement around 1900 did not have any lasting
influence.[2] In 1961, Ronald Coase and Guido Calabresi independently from each other
published two groundbreaking articles: "The Problem of Social Cost"[3] and "Some Thoughts on
Risk Distribution and the Law of Torts".[4] This can be seen as the starting point for the modern
school of law and economics.[5]

Harold Luhnow, the head of the Volker Fund, not only financed Friedrich von Hayek in the U.S.
starting in 1946, but he shortly thereafter financed Aaron Director’s coming to the University of
Chicago in order to set up there a new center for scholars in law and economics. The University
was headed by Robert Maynard Hutchins, a close collaborator of Luhnow’s in setting up this
“Chicago School.” The University already had Frank Knight, George Stigler, Henry Simons, and
Ronald Coase – a strong base of libertarian scholars. Soon, it would also have not just Hayek
himself, but Director’s brother-in-law and Stigler’s friend Milton Friedman, and also Robert
Fogel, Robert Lucas, Eugene Fama, Richard Posner, and Gary Becker. The historians Robert van
Horn and Philip Mirowski described these developments, in their “The Rise of the Chicago
School of Economics” chapter in The Road from Mont Pelerin (2009); and historian Bruce
Caldwell (a great admirer of von Hayek) filled in more details of the account in his chapter, “The
Chicago School, Hayek, and Neoliberalism,” in Building Chicago Economics (2011). Van Horn
(a Hayek critic) filled in yet more details of this history in a Seattle University Law Review
article (“Chicago’s Shifting Attitude Toward Concentrations of Business Power [1934-1962]”)
explaining how the influence of Luhnow and other corporate funders wrenched the Chicago
School away from its predecessors’ common support for anti-trust. Van Horn argues that the
opposition to antitrust, and the acceptance of corporate monopoly power and control by
oligopolies (such as Germany’s and Italy’s fascists had always supported), which came to be
championed by Robert Bork and others at Chicago, had their actual origins in America’s
corporate boardrooms.

In 1958, Director founded the Journal of Law & Economics, which he co-edited with Nobel
laureate Ronald Coase, and which helped to unite the fields of law and economics with far-
reaching influence.[6] In 1962, he helped to found the Committee on a Free Society. Director's
appointment to the faculty of the University of Chicago Law School in 1946 began a half-
century of intellectual productivity, although his reluctance about publishing left few writings
behind. He taught antitrust courses at the law school with Edward Levi, who eventually would
serve as Dean of Chicago’s Law School, President of the University of Chicago, and as U.S.
Attorney General in the Ford administration. After retiring from the University of Chicago
School of Law in 1965, Director relocated to California and took a position at Stanford
University’s Hoover Institution. He died September 11, 2004, at his home in Los Altos Hills,
California, ten days before his 103rd birthday.

In the early 1970s, Henry Manne (a former student of Coase) set out to build a center for law and
economics at a major law school. He began at Rochester, worked at Miami, but was soon made
unwelcome, moved to Emory, and ended up at George Mason. The last soon became a center for
the education of judges—many long out of law school and never exposed to numbers and
economics. Manne also attracted the support of the John M. Olin Foundation, whose support
accelerated the movement. Today, Olin centers (or programs) for Law and Economics exist at
many universities.
Positive and normative law and economics
Economic analysis of law is usually divided into two subfields: positive and normative.

Positive law and economics

'Positive law and economics' uses economic analysis to predict the effects of various legal rules.
So, for example, a positive economic analysis of tort law would predict the effects of a strict
liability rule as opposed to the effects of a negligence rule. Positive law and economics has also
at times purported to explain the development of legal rules, for example the common law of
torts, in terms of their economic efficiency.

Normative law and economics

Normative law and economics goes one step further and makes policy recommendations based
on the economic consequences of various policies. The key concept for normative economic
analysis is efficiency, in particular, allocative efficiency.

A common concept of efficiency used by law and economics scholars is Pareto efficiency. A
legal rule is Pareto efficient if it could not be changed so as to make one person better off
without making another person worse off. A weaker conception of efficiency is Kaldor-Hicks
efficiency. A legal rule is Kaldor-Hicks efficient if it could be made Pareto efficient by some
parties compensating others as to offset their loss.

Law and development

Law and development

From Wikipedia, the free encyclopedia

Law and development is an interdisciplinary study of law and economic and social
development. It examines the relation between law and development and analyzes how to use
law as an instrument to promote economic development, democracy and human rights. This
ensures that with the changing world the law is not violated.

In the 1960s, some American organizations such as the U.S. Agency for International
Development and the Ford Foundation sponsored the law reform in developing countries. Legal
scholars from leading American law schools wrote many articles discussing the contribution of
law reform to economic development. This was called the law and development movement.
However, after only one decade, both key involved scholars and former Ford Foundation
officials declared this movement failed.[1]
The presumably failed law and development revived in the 1980s, with the proliferation of law
reform projects based on neoliberal ideals. These projects supported liberal reforms such as
privatization and trade liberalization, with the emphasis on the rule of law. Substantial
investments were made on these projects by international development agencies such as the
World Bank, USAID, and other public agencies and private foundations, but these law reform
projects were criticized for being ineffective or causing adverse impacts on development.

The cause of the failure in the first and second law and development movements is that the law
reform projects were developed and implemented without sufficient understanding of the
mechanism by which law, legal frameworks, and institutions (LFIs) impact economic and social
development, which is affected by various socio-economic factors on the ground. [2] The Law
and Development Institute was set up in 2009 to promote studies in law and development and
develop a comprehensive analytical model for law and development, and the Law and
Development Review was launched in 2008 as the only peer-reviewed academic journal devoted
to law and development.

Law & Development studies have been growing in the past few years, after having its death declared in
the 1070s. There is, however, very little clarity as to what this field of study encompasses or whether it is
a field at all. Under the label of Law & Development one can find a wide variety of studies, approaches,
analyses and topics. Some studies focus on formal institutions, discussing how enforcement of contracts,
protection of property rights, and an independent judiciary protect investors and improve economic growth
in developing countries. Others have not focused on economic development, but instead on how laws to
protect women from abuses in the family and to create quotas to guarantee their participation in the public
sphere have been largely ineffective due to deeply embedded social norms and value that cannot be
changed by legislation (at least not from one day to the next). Still others have criticized the Law &
Development discourse as another source of imperialism and dominance that justify senseless legal
transplants from the North to the South.

What brings all these studies together under one label? What is it that one should know, if one is looking
for a concise summary of what this field of study encompasses? These are the questions that I will try to
answer in this essay. The read should be forewarned that the title may be slightly misleading, as the
paper will not provide comprehensive and conclusive answers to the question “What is Law &
Development?” but hopefully it will offer a starting point for a deeper inquiry. Most importantly, I hope
readers will take this as an invitation to explore this field in greater depth.